Schwab shuns load funds in DOL's wake

Mutual funds with sales loads to come off the shelves May 2

Apr 27, 2016 @ 9:08 am

By Jeff Benjamin

In the latest sign of the changes to come in the wake of the new DOL fiduciary rule, Charles Schwab Corp. is taking mutual funds with sales loads off its shelves.

The move away from sales loads, and higher fund expenses in general, will become a sign of the times under the DOL rule, according to Todd Rosenbluth, director of mutual fund and ETF research at S&P Capital IQ.

“We expect more firms to look to no-load options for investors as advisers and their clients become more cost-conscious,” he said. “With advisers increasingly using lower-cost passive strategies in fee-based accounts, assets have been moving out of many mutual funds with sales loads. The pending Department of Labor rules will accelerate this trend.”

(More: Coverage of the DOL rule from every angle)


A representative from Schwab confirmed that as of May 2 "we will no longer purchase Class A Load mutual funds – although they can still transfer in, sell and elect dividend reinvestment for those shares."

Company spokeswoman Alison Wertheim said the “move away from load funds has been a secular trend over the last decade or more and Schwab has never been a significant player in this space.”

Despite the timing of the decision, she said that “Our decision wasn't triggered by DOL; it's a housekeeping move for a low-volume business.”

She added that “load funds have never been a part of our core — over the past two years we've accommodated about 750 of these purchase trades; a tiny fraction of our mutual fund business overall.”

The fiduciary rule's emphasis on advisers acting in the best interest of investors is expected to put downward pressure on fees, representing at least an initial advantage to such low-cost asset management firms as The Vanguard Group.

Schwab's decision was first reported by the Wall Street Journal.


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